A tightly integrated supply chain for a small or large business is a network of businesses and contractors that provide raw materials, transportation, manufacturing, distribution, warehousing and retailing services. Businesses rely on efficient supply chains to provide a high level of customer service, while meeting sales and profit targets. Information technologies, including enterprise resource planning systems, are at the core of integrated supply chains.

Flexibility

Tight supply chain integration gives management operational flexibility to respond rapidly to external events, such as the actions of competitors and changes in customer demand. Companies can gather intelligence through their supply chains, which allows them to be generally aware of what their competitors are planning months in advance. For example, if a competitor launches a new product, an electronics manufacturer could leverage its integrated supply chain to source the parts, activate a marketing plan and rush a prototype from the design stage to the launch stage in a few weeks.

Inventory Management

Integrated supply chains improve inventory management, which means fewer overstocked and understocked conditions. Overstocking may result in higher storage costs and product obsolescence, while understocking could mean losing customers to competitors. Tight integration means that retailers can quickly adjust their inventory orders weeks or months in advance of anticipated changes in customer demand to ensure that the right amount of stock is on hand. Speed is essential in global supply chains because raw materials and finished goods are often transported over long distances. Tightly integrated supply chains also facilitate just-in-time manufacturing, in which companies assemble and manufacture products as the orders come in.

Profit Margins

Operating flexibility and tight inventory management lead to a lower cost structure, which results in higher profit margins. By responding rapidly to changes in the competitive and customer environments, small businesses are able to remain competitive and maintain or grow their top and bottom lines. Tight integration provides companies with visibility not only into their own operations but also into their suppliers' operations, which allows for collaborations on reducing costs and driving margins.

Considerations

Tightly integrated supply chains can serve as early warning systems. For example, if a supplier is experiencing cash flow problems, customers will find out quickly and they can start making alternative arrangements. Some customers may step in and loan the supplier some working capital so that they can continue operating. Supply chain integration usually involves upfront costs and disruptions in operations as people are trained on new information systems.

About the Author

Based in Ottawa, Canada, Chirantan Basu has been writing since 1995. His work has appeared in various publications and he has performed financial editing at a Wall Street firm. Basu holds a Bachelor of Engineering from Memorial University of Newfoundland, a Master of Business Administration from the University of Ottawa and holds the Canadian Investment Manager designation from the Canadian Securities Institute.